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Monday, July 27, 2015

NDA Govt Allows CPSE's To Raise Funds through Tax-free Bonds for Infrastructure

It is not for the first time that the government is allowing a few companies to raise funds through issuance of tax free bonds

 The most recent permission given to seven central public sector enterprises (CPSEs), all engaged in crucial infrastructure activities, to collectively mop up Rs.40,000 crore is in line with the announcement made in the budget.

The Central Board of Direct Taxes issued the notification on July 6,2015

The intention is to enable these CPSEs to complete their fund raising exercise during the remaining 8 to 9 months of the year, The CPSEs, all big names in infrastructure are NHAI, IRFC, HUDCO, IREDA, REC, PFC and NTPC.

NHAI has been given the lion’s share, out of the total Rs.40,000 crore, it will mobilise Rs.24,000 crore (60 percent). IRFC will raise Rs.6,000 crore, HUDCO Rs.5000 crore, IREDA Rs.2,000 crore and the REC, PFC and NTPC Rs.1,000 crore each. 

The interest rate will be subject to a ceiling on the coupon rates based on the reference G-sec rate. So in a way the tax-free bonds are linked to market rates and can move up and down with the G-sec rate. 

The government wants the CPSEs to go through the public issue route to an extent of 70%, the balance to come from private placement

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